For decades, economists have considered the costs and benefits of adopting variations of highly developed apprenticeship systems operating in Germany and Switzerland. Such efforts are based on the belief that apprenticeships are almost always a “win-win” for employers and apprentices. For employers, apprenticeships are billed as an efficient and cost-effective way to address skills and knowledge that are deficient in the workforce. For apprentices, they are a way to acquire hard and soft skills that boost employment prospects and wages.
Recently, both the North Carolina General Assembly and the Trump administration have earned praise by announcing plans to expand and strengthen apprenticeship and workforce development programs. Nevertheless, apprenticeships are far from a foolproof way to address deficiencies in the workforce. Before the state and federal government commit to a long-term investment in apprenticeships, they should consider the various shortcomings of work-based programs, including institutional incentives and constraints that may undermine well-intentioned efforts to address deficiencies in our state’s labor market.
There is no question that a “skills gap” exists in North Carolina. According to the 2016 Employer Needs Survey (pdf) commissioned by the NCWorks Commission, employers have found that many job candidates lack the necessary work experience, training, and technical and soft skills to be successful in the workforce. Manufacturing and construction industries appear to have a more difficult time finding qualified candidates than other surveyed professions. Overall, around 40 percent of respondents had difficulty finding a suitable candidate for at least one position last year. I suspect that businesses and industries in most states encounter similar obstacles.
Not all firms, however, have the incentive or capacity to support apprenticeships. Businesses in the United States have reasonable concerns about the costs and benefits of work-based programs. During the initial apprenticeship period, the cost of paying wages to apprentices and trainers, supplying apprentices with requisite equipment and materials, and compensating for lost productivity far exceeds any short-term benefits. A separate study found that 60 percent of all Swiss firms that sponsored apprenticeship programs encounter a net cost.
Only when the apprentice obtains knowledge and skills comparable to trained workers and applies what they have learned for an extended period, do businesses begin to recoup their initial investment. But studies of German and Swiss apprenticeship programs indicate that only between one-third and one-half of apprentices remain with the firm that trained them. As such, businesses may be reluctant, and understandably so, to invest in an apprentice because they believe that it will ultimately benefit their competitors. That said, research suggests that the likelihood of “poaching” talent depends on the industry, the quality of the apprenticeship program, and market conditions.
Multiple legal and regulatory barriers also impair the ability of the business in the United States to retain an apprentice long enough to recover their initial cost training costs. Child labor laws, union contracts, state and federal statutes, agency-enforced rules and regulations, and policies established by educational institutions or sponsoring entities impose limits on the amount of time that an apprentice can work and, thus, limit the return on investment for participating industries and businesses. Addressing these barriers are an oft-overlooked prerequisite to any large-scale expansion of apprenticeship and workforce development programs.
The size of the business also plays a role. Larger firms often have the capacity to train several apprentices simultaneously, thereby reducing the marginal or individual cost of training each. Additionally, large businesses are better positioned to recoup their costs because they are likely to have post-apprenticeship job opportunities available. Small and medium enterprises (SMEs), on the other hand, have limited resources and are less likely to be able to recoup their investment through the subsequent employment of the apprentice. Subsidies or tax incentives for firms that sponsor apprenticeships may put SMEs at an even larger competitive disadvantage.
In the end, North Carolina and the federal government should strongly encourage, but not offer grants or tax incentives, to employers who offer apprenticeship and work-based programs. If businesses and industries believe it to be in their best interest to sponsor a training program, they should do so with minimal regulatory interference.
